WASHINGTON — Citigroup Inc. will convert a portion of its preferred securities from the Treasury Department's rescue effort into common stock equity, the department said Friday.
Treasury also said that Citi will change its board of directors so that a majority of the board is comprised of new independent directors.
Citigroup has received $45 billion from Treasury's Troubled Asset Relief Program and rumors have swirled recently that it would need additional funds. In announcing the equity conversion, Treasury did not announce any new capital and said the conversion would not increase the government's investment.
Citi is converting $25 billion in preferred stock from the government alongside conversions by other preferred holders.
Under the agreement, the remaining $20 billion in Citi rescue funds will be converted into a trust preferred security of greater structural security carrying the same 8% dividend rate as the existing issue.
"Treasury will receive the most favorable terms and price offered to any other preferred holder through this exchange," the Treasury said in a press release.
The aim of the equity conversion is to increase tangible common equity at Citi, which market participants have come to view as a more reliable gauge of an institution's health. Treasury also said Citi will be subject to the Treasury's upcoming stress tests to determine if it needs an additional capital buffer.
Citi said the conversion would cover other preferred stock holders including the government of Singapore Investment Corp. Pte Ltd., HRH Prince Alwaleed Bin Talal Bin Abdulaziz Alsaud, Capital Research Global Investors, and Capital World Investors.
Depending upon how many shares these investors convert, Citi said the exchange may be extended to holders of trust preferred securities and enhanced trust preferred securities.
Citi said it would suspend dividends on its preferred shares and its common stock dividend.
Finally on Friday morning, Citi also announced it would take fourth-quarter goodwill impairment charge of approximately $9.6 billion ($8.7 billion after-tax).
The charge wipes out the goodwill related to Citi's consumer banking divisions North America, Latin America, and consumer banking divisions around the globe.
Citi also said it would take a $374 million charge ($242 million after-tax) to reflect further impairment in the intangible asset related to Nikko Asset Management. Citi blamed "the rapid deterioration in the financial markets, as well as in the global economic outlook generally, particularly during the period beginning mid-November through yearend 2008."
